Eight years since Washington voters overwhelmingly rejected Initiative 1098 that would have created a progressive income tax, state revenue has grown from approximately $29 billion in the 2011-13 biennium to $41.7 billion for the 2017-19 biennium.
The latest estimates from the state Economic and Revenue Forecast Council (ERFC) indicate revenue streams will reach $48 billion by 2019-21, a near $20 billion and 69 percent increase in revenue since 2010. It’s also roughly the same amount of revenue that I-1098 backers estimated the income tax would raise within the same timeframe ($2 billion annually).
Moreover, the increased state revenue has led to billions in new funding for education, one of the arguments made for I-1098 by supporters.
Heading up the campaign against I-1098 was Madrona Venture Group Managing Director Matt McIlwain. As he sees it, the state’s fiscal situation since has vindicated a tax policy that encourages “growing the pot versus focusing on how to better divide the pot.”
It’s a narrative that he and others are also using, along with a strong legal argument, against the city of Seattle’s progressive income tax ordinance via Opportunity For All.
At Washington Policy Center’s May 23 Solutions Summit in Spokane, McIlwain told attendees that “really what we’re trying to pursue is getting the better policies to prevail.”
Although a King County Superior Court judge ruled against the city in November, the city is appealing to the State Supreme Court in the hopes sympathetic justices will overturn 80 years of jurisprudence holding that income is considered property under the state Constitution and thus subject to the uniformity clause.
Yet regardless of how the court rules, the damage to the city’s business climate has already been done, McIlwain said, pointing to Amazon’s decision last year to build its second headquarters outside Washington. “Actions have consequences – like your largest employer…sending some pretty strong signals since the Seattle income tax was passed, that they’d had enough.”
But there’s also the unseen consequences of unfriendly tax policy when companies such as Bellevue-based Smartsheet choose either not to expand or start up in the area. The company recently went public and is expected to bring in $150 million in revenue next year.
Initially, Smartsheet planned to open a new office in Seattle, but decided against it based on the city’s new tax ordinances, McIlwain said.
Until now, the city of Seattle has reaped the economic awards from the lack of an income tax, McIlwain argues. Its unemployment rate is 3.1 percent, and in the last five years, revenue has gone up by 35 percent.
“The economic opportunity is literally expanding,” McIlwain said. “Is some of that good fortune and lucky? Absolutely, but it also is we have a virtuous cycle of innovation and companies…creating all other kinds of jobs.”
However, either a local or a statewide income tax would disrupt that growth by driving it elsewhere, he added. McIlwain is “cautiously optimistic” that the Supreme Court will ultimately rule against Seattle. Even if a progressive income tax were made legal, state lawmakers would likely be reluctant to pass one.
And nearly a decade after I-1098 and with thousands of new residents , Washington voters are still as opposed to the idea as they were before, according to a poll conducted by the Washington Policy Center.
Such strong opposition might be attributed to how the issue is framed, McIlwain said. Before the campaign against I-1098 picked up, most Washingtonians actually favored the initiative because “narratives matter. Bill Gates, Sr. had a narrative about education funding. It didn’t hold up, in my opinion.”
Also using a similar narrative as Opportunity For All is the Choose Washington NMA Council, a campaign created by Governor Jay Inslee earlier this year to entice Boeing into investing its 797 development, production and assembly in Washington. Among its list of reasons why Washington is a “low risk” place for Boeing to invest is that the state “doesn’t have a personal or corporate income tax or a capital gains tax.”